If you’re over the age of 55 and you’re considering drawing either a lump sum or an income from your pension plans, there are a wide range of options available and it is worth taking a bit of time to explore the different avenues and see which will best suit your individual needs.
As you approach ‘retirement’ age, you’ll find you are inundateded with phone calls and paperwork offering you an annuity. The insurer is prompting you to convert your pension pot into a regular income. They’ll collect their charges and in return, you’ll be paid an income for the rest of your days. The key point, which is rarely stressed enough, is that no one can force you to buy an annuity, you have other options available and it’s worth taking some time to review those options.
Income Drawdown, whilst not the ‘traditional’ option, is now becoming an extremely attractive alternative for a large number of those approaching retirement. Drawdown is often depicted as a complex and expensive product which isn’t suitable for the majority, however, the reality is that Income Drawdown presents a relatively straightforward means of drawing a lump sum and/or income from your pension pot. Yes, it will require some monitoring, and you’ll pay charges in the same way as you have done within your pension plan, but as with anything, its about weighing up the pros and cons.
You can still draw the 25% tax free lump sum from your plan and with the remaining funds, rather than purchasing a regular income, you retain control of the pot and invest it (it may be that you continue to invest in exactly the same funds as your existing pension). You can draw an income directly from the pot if you wish, which is usually subject to certain limits (you may be able to draw the full pot), or leave the funds invested in the hope of achieving further growth (in fact, you don’t have to draw an income at all).
Income Drawdown plans can be set-up with no minimum fund values so the majority of those with pension plans in place will have this facility available. It may be that Drawdown provides a means of accessing the tax free cash without drawing an income, or that you’re attracted to the flexibility in terms of being able to adjust your income withdrawals. Those who are looking to phase their retirement; perhaps gradually moving from full-time to part-time work will often find this mechanism best suited to their circumstances. The death benefits can also be significantly greater than those attached to an annuity purchase.
Not every pension provider offers the option of Drawdown so it may be that transferring to a modern plan is the best course of action.
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